Social Security is back in the headlines. Democratic presidential hopeful Bernie Sanders attacked his rival for the nomination, former Vice-President Joe Biden, for his past support of some relatively small cuts in Social Security’s growing long-term costs. Then, President Donald Trump hinted that he might back some unspecified changes in entitlements, perhaps including Social Security. At the same time, almost every candidate, including the president in his State of the Union address and Biden, in his pledge to older Americans, promise to “protect” Social Security.
You may think that “protect” is a weasel word. But I like it. Like the animal itself, it can be quite adaptive.
But who and what would be protected? And from what threats? Let’s look at what “protect” can and cannot mean.
Does “protect” mean current law must remain unchanged? No. Otherwise, according to the latest estimates, elderly and disabled beneficiaries will lose close to 20 percent of their benefits starting in 2035 when the Social Security trust funds run out of assets. At that point, Social Security payroll taxes will be sufficient to support about 4/5 of the expected benefit claims.
Even before that day of reckoning, every year that Social Security spends more than it collects in taxes, it shifts unfunded costs to future taxpayers and beneficiaries, either within Social Security, or outside of it through higher federal debt, lower non-Social Security spending, or higher other federal taxes like the income tax. There are no other options.
Does “protect” mean that Social Security reform will exempt current beneficiaries from covering any of the shortfall? Almost certainly. The only exception might be revising annual cost of living adjustments to reflect what many believe is a more accurate measure of inflation (the so-called “Chain CPI”). This switch sometimes has been supported by both Democrats and Republicans, including at one time President Obama and members of a bipartisan commission.
Does “protect” mean that the scheduled rate of growth in benefits will be maintained for all? Unlikely. The number of payroll tax-paying workers will decline rapidly as the baby boomers retire. But scheduled benefit growth means a currently retired couple with average earnings will receive about $650,000 over their lifetime while a millennial couple is due to receive about $1 million. For many, benefits still exceed the taxes paid by the couple during their working years.
Does “protect” mean that future beneficiaries will receive real inflation-adjusted benefits that are at least as high as today’s beneficiaries? Probably, since there’s a lot of room between no real growth and the growth in benefits that is already scheduled under current law.
Does “protect” mean sparing lower earners from sharing in the costs of reform? Possibly, as some proposals would add additional protections and higher minimum benefits for lower earners. However, lower lifetime earners already share in the burden of financing Social Security now, since the growth in Social Security and health costs, along with higher interest costs, has been squeezing out almost all other programs, including those federal programs that support working families.
Does “protect” mean sparing those with above-median earnings from sharing in the burden? Forget it. The higher one’s earnings, the higher the payroll taxes paid and the higher the benefits received, and reform will be paid for largely by those who pay most of the taxes and get most of the benefits. So, the real fight over Social Security reform boils down to how much to raise taxes and/or reduce benefits for these earners.
Does “protect” mean maintaining the retirement age so Social Security pays for more years of benefits as older people live longer? Perhaps, though it is getting harder and harder to define Social Security as an “old age” program. Today, individuals who retire can expect close to two decades of benefits and couples who retire can expect close to three decades of benefits. The financial aspects of this trend accrue largely to the richest households for at least two reasons. Not only have their years of remaining life expectancy been increasing the most, but the highest-income households have avoided much of a hopefully brief recent increase in middle-age mortality associated with opioids, obesity, and suicide that has increased the share of the population who don’t even reach the prescribed retirement age.
Does “protect” guarantee that we won’t have more near-poor elderly in the future? No, though it certainly could. Urban Institute research soon to be published will show that the share of the elderly receiving very low benefits may increase under today’s scheduled benefits and even under some reforms.
Does “protect” mean that Congress will adopt a well-defined process to reform Social Security? At least so far, the evidence is weak. Many recent Congressional proposals are framed around political rhetoric such as “no new taxes” or “no cuts in benefits” with little regard for the need to target future resources more equitably and efficiently as would be done in a true reform effort.
So, what should “protect” mean? Reforms should help lower-to-median-earning households, remove almost all poverty among the elderly, concentrate benefits more in older age, and better encourage work by older adults. A reformed Social Security system should be more equitable and establish a sustainable rate of growth in lifetime benefits relative to lifetime earnings for middle-income households. Reforms also should take into account other government benefits and private sources of income of seniors and people with disabilities, partly by attacking rising Medicare costs and strengthening private pensions.
But the bottom line is: “protect” cannot possibly mean that nobody pays for what everybody gets.
